Alibaba and Amazon Entry to Accelerate E-Commerce in Pakistan?

Mediareportssuggest global e-commerce behemoth Amazon.com could purchase substantial stake in Pakistan'se-commercesite Clicky.pk. This comes on the heels of a Bloomberg story that quoted anonymous sources indicating Chinese e-commerce giant Alibaba is in serious negotiations to acquire Daraz.pk. Online sales in Pakistan's $152 billion retail market are doubling every year, according to Adam Dawood of Yayvo online portal. He expects them to pass $1 billion in the current fiscal year (2017-18), two years earlier than the previous forecast.

Amazon's Presence in Pakistan:

Amazon already owns about 33% stake in Clicky.pk through its acquisition in 2017 of Dubai-based online retailer Souq. Souq acquired this stake in the Pakistani company in late 2016.

In March this year,Bloombergcited sources saying that Alibaba and Daraz.pk are negotiating a a price for the acquisition. It said that the "deliberations are an early state and no decisions have been made".

E-Commerce Market Growth:

Online sales in Pakistan's $152 billion retail market are growing much faster than the brick-and-mortar retail sales. Adam Dawood of Yayvo online portal estimates that e-tail sales are doubling every year. He expects them to pass $1 billion in the current fiscal year (2017-18), two years earlier than the previous forecast.

E-commerce in Pakistan is being enabled by increasing broadband penetration and new online payment options. Ant Financial, an Alibaba subsidiary, has just announced the purchase of 45% stake in Pakistan-based Telenor Microfinance Bank.

Payment Options:

Mobile wallets, also called m-wallets, are smartphone applications linked to bank accounts that allow users to make payments for transactions such as retail purchases. According to recent State Bank statistics on branchless banking (BB) sector, mobile wallets reached a high of 33 million as of September 2017, up 21% over the prior quarter. About 22 percent of these accounts – 7.4 million – are owned by women, up 29% seen in Jul-Sep 2017 over previous quarter. Share of active m-wallets has also seen significant growth from a low of 35% in June 2015 to 45% in September 2017.

Summary:

Online sales in Pakistan's $152 billion retail market are doubling every year, according to Adam Dawood of Yayvo online portal. The country's retail market is the fastest growing in the world, according to Euromonitor. Expanding middle class, particularly millennials with rising disposable incomes, is demanding branded and packaged consumer goods ranging from personal and baby care items to food and beverage products. Strong demand for fast moving consumer goods is drawing large new investments of hundreds of millions of dollars. Rapid growth in sales of consumer products and services is driving other sectors, including retail, e-commerce, paper and packaging, advertising, media, sports and entertainment. Potential downsides of soaring consumption include increased amount of solid waste and decline in domestic savings and investment rates.

The number of registered e-commerce merchants has risen by 2.6-times and e-commerce payments have surged 2.3-times in a span of just twelve months, as per a State Bank of Pakistan (SBP) report. But this is still a young market with significant room for growth.

Pakistani businesses have embraced e-commerce. Hundreds of retailers, ranging from clothing outlets to electronic equipment stores, are now using websites to sell goods to customers.

The emergence of several online marketplaces, such as Daraz.pk and OLX Pakistan, has made it easier for retailers to sell goods on the web. At the same time, a number of new online businesses have also propped up.

As per the SBP’s Payment Systems Review (Q2FY18), there were a total of 344 e-commerce merchants in the country registered with banks at the end of 2016. By the end of 2017, that number had climbed to 905.

This growth was accompanied by a surge in e-commerce transactions from these merchants from Rs3.9 billion in the last three months of 2016 to Rs9.1bn in the last three months of the previous year. The central bank’s report also indicates that around 800 million payment transactions totalling Rs4.5bn were booked in the last three months of 2017. That’s also considerably greater than the Rs2bn e-commerce payments that happened in the same period of 2016.

The actual value of e-commerce sales, however, is likely several times larger than the above-mentioned numbers. That is because the central bank’s report only shows those transactions that occurred through debit or credit cards.

But Pakistani consumers mainly use the cash-on-delivery (COD) system to buy goods online. As per one estimate, almost 85 per cent of online sales occur through COD. Using this, we can speculate that roughly Rs25.5bn e-commerce payments may have occurred in the Oct-Dec period through the COD system.

It wasn’t long ago when the Pakistan Telecommunication Authority noted in its annual report for the previous fiscal year that the size of Pakistan’s e-commerce market could grow from $60m-$100m in 2015 to $1bn by 2020.However, industry experts now believe that the country could hit the key milestone by as soon as this year.

If the country continues to witness e-commerce sales of Rs30bn in every quarter from electronic card and COD system, just as it likely did in the last three months of 2017, then the total sales for the ongoing fiscal may clock in at Rs102bn, or $1.1bn at the current exchange rate. If however, Pakistan witnesses an increase in online sales, which could be driven by the Eid shopping season, then the market could go way past the $1 billion threshold in 2018.

At $1 billion, however, the size of Pakistan’s e-commerce market will still be tiny. Global e-commerce retail sales are expected to be around $2.8 trillion in 2018, as per data from Statista, a provider of market and consumer data.

China is the world’s largest e-commerce market where the online retail sales are forecasted to be around $600bn for 2018, followed by the US with $461.5bn of expected sales. India could report $25bn of retail e-commerce sales in the current year.

That being said, Pakistan is still a young e-commerce market where less than one-fifth of the total population uses the internet.

As per latest data from Internet Live Stats, the global internet penetration rate is around 46pc. In developed markets like the US, the metric is over 80pc. In Pakistan, however, a little less than 18pc of the population has access to the internet. That’s less than half of the global average, which means that there’s significant room for growth although internet penetration in the country has already grown significantly from just 8pc in 2010.

Daraz, founded in Pakistan in 2012, operates online marketplaces in Pakistan, Bangladesh, Myanmar, Sri Lanka and Nepal. The unit will continue to operate under the same brand following the sale to Alibaba, Rocket said.

As per report of GSMA, by year 2020, a whopping 90 per cent of Pakistani population will have access to 3G networks while an impressive 80 per cent population will have access to 4G. Obviously, mobile broadband growth means flourishment of smartphone.

The mobile broadband users growth in pakistan is expected to touch 8 per cent mark in coming years as the country would have more than 100 million smartphones by 2020.

The third-generation (3G) and 4G mobile phone users stand at around 56 million and continue to grow, creating a huge demand for smartphones, which is the top selling category across all major e-commerce platforms.

Having surpassed 5 billion people connectedto mobile services in 2017, the global mobileindustry will reach further milestonesover the next eight years. The number ofunique mobile subscribers will reach 5.9billion by 2025, equivalent to 71% of theworld’s population. Growth will be driven bydeveloping countries, particularly India, China,Pakistan, Indonesia and Bangladesh, as wellas Sub-Saharan Africa and Latin America.

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While more than 3 billion people use mobile internetglobally (internet-connected consumers), theirdigital engagement – measured by the GSMAGlobal Mobile Engagement Index (GMEI) – variessignificantly between countries. On a scale of 0–10,South Korea (6.8), Scandinavian countries (e.g.Finland at 6.7, Sweden at 5.8), Australia (5.5) andthe US (5.3) have relatively high mobile engagementscores (2017); many subscribers in these countriesuse their phones on a regular basis to access notonly internet-based messaging and social mediabut also entertainment content (such as movies,music, games and sports), e-commerce and otherdigitally delivered services and content (i.e. financialservices, health, education, government services).Pakistan, India and Tanzania have the lowest scores(at around 1.0).

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Telenor’s Easypaisa digitises payments for Nestlé dairy farmers in PakistanPakistan is the third largest milk-producing nation in the world, behind the US and India, with dairy andlivestock accounting for around 12% of GDP. The local unit of multinational food business Nestlé workswith around 150,000 dairy farmers across the country. Every year, the company pays approximatelyPKR22 billion ($208 million) for nearly 0.5 billion tons of milk through an extensive chain of morethan 2,500 milk collection centres. Most farmers receive their payments in cash from the supply agentrouted via the traditional banking channel.Telenor’s Easypaisa mobile money service collaborated with Nestlé Pakistan to make disbursement ofmilk collection payments swift, easy and transparent. Easypaisa provided Telenor SIMs and registeredEasypaisa mobile accounts for around 15,000 farmers across Pakistan for the transfer of funds intotheir accounts on a weekly basis. Easypaisa processed payments totalling more than PKR1 billion todairy farmers annually.

Alipay, the China-based third party mobile and online payments platform, will start operations in Pakistan by the end of this year, according to Irfan Wahab Khan, the Telenor chief executive officer.

Khan is also a board member of the Telenor Microfinance Bank in which Ant Financial, the parent company of Alipay and the financial services affiliate of Alibaba, acquired a 45% stake at an investment of $184.5 million in March 2018.

Currently, Ant Financial is in the process of taking approval from relevant authorities such as the State Bank of Pakistan (SBP) and Competition Commission of Pakistan (CCP) to commence financial services in the country.

As Pakistan embraces digital technology after the spectrum auction that saw the arrival of 3G/4G services in the country, a payments solution was the need of the hour. While mobile phone infrastructure and service penetrate 72% of the population, according to the latest data available with the Pakistan Telecommunication Authority (PTA), future growth will rely on digital payments becoming more accessible.

Pakistan has 58 million broadband subscribers including 56 million 3G/4G subscribers. Its e-commerce market is estimated at $1 billion, and gaining momentum.

Recently, Alibaba, the Chinese e-commerce giant, acquired Daraz.pk from venture capital company Rocket Internet, and is tipped to be expanding its footprint in the country.

Its financial muscle and experience will help it against competition that includes the likes of PayPak of 1link, Fonepay, and Avanza Premier Payment Services (APPS) that have also entered the digital payments space with investments to the tune of millions of dollars.

Telenor – with its network and infrastructure – is also looking at the next growth segment as mobile broadband penetration slows down in the next five years.

Additionally, as users opt for over-the-top applications that bypass the traditional calls-receiving and calls-making processes, cellular mobile operators (CMOs) are now eyeing growth in the digital payments segment.

“We are putting a site an hour on 4G and will complete 80% of them by the end of this year,” said Khan, who took over as CEO Telenor Pakistan on August 1, 2016.

Mobile payment firms struggle to dethrone cash in Southeast Asia

Telenor is currently placed second as the CMO with the highest number of subscribers. It has 43 million subscribers after Jazz, which is the market leader with 55 million.

Telenor also has a 23% market share in the Next Generation Mobile Services (NGMS) market, which puts in third place after Jazz (34%) and Zong (29%).

On the other hand, Telenor also invested in an agriculture sector-related app, ‘Khushhal Zameendar’, which provides location-specific weather forecast and agronomic advisory to small-scale farmers.

“It’s about incentive. Customers are sensible to adopt new technology when it offers incentives to them,” Khan said.

#Alibaba's #Alipay's entry to tap great potential of #Pakistan #ecommerce market. US$184 million investment to expedite mass adoption of digital #payments in Pakistan. #Internet penetration rising with estimated 60 million subscribers of 3G and 4G. https://on.china.cn/2EO9fAc

Alipay, a subsidiary of Hangzhou-based Ant Financial, has been cleared by the Competition Commission of Pakistan (CCP) to acquire a 45 percent stake in Pakistan's Telenor Microfinance Bank.

The investment of over US$184 million will expedite widespread adoption of digital payments in Pakistan. With internet penetration continuously on the rise, there are an estimated 60 million subscribers of 3G and 4G in the country that can become potential users of the service.

Several mobile payment services are presently operating in Pakistan. Primarily, these have been offered by telecom operators with a large number of cellular subscribers. However, limited international application has kept the penetration rate of the payment portals relatively low. Entry of Alipay, the world's largest mobile payment platform, will intensify competition higher, improve the quality of service and reinvigorate the entire landscape of the industry.

Pakistan's growing young population makes it suitable for embracing cashless payments on a large scale. People under the age of 30 form 64 percent of the population who are always the most likely to take up any new technology. On top of that, high cellular phone use will be a facilitative factor, since the mobile-first strategy for internet-based businesses is very valid in Pakistan.

Commencement of Alipay's operations in Pakistan will also provide a major push to e-commerce. eBay CEO Devin Wenig recently identified emerging economies like Pakistan as the fastest growing e-commerce hubs of the world. The trend is spreading like wildfire across the country with new online shops emerging constantly. A reliable e-payment gateway with worldwide collaborators is all that Pakistanis need to streamline their online transactions.

Alibaba had already acquired Pakistan's leading e-commerce platform Daraz. Utilizing the reach of Alibaba, Pakistani sellers will now be able to connect with global buyer.

The digital payment boom will be most beneficial for small and medium-sized enterprises that form the backbone of the national economy. Many of these businesses face difficulties in financial transactions due to being located in rural areas. Alipay might prefer to focus on them as the Pakistani government wants to reduce their business costs and difficulties.

Across the border in China, a new policy is on the cards to increase e-commerce purchases from overseas. Around 63 additional categories are being added to a product list of what can be imported duty-free through online platforms. Moreover, 22 cities, such as Beijing, Nanjing and Shenyang, are also being included in e-commerce pilot zones.

With several food items in the revised e-commerce import list, there is much potential for Pakistani farm produce. Fruits like mango and the mandarin hybrid kinnow can gain extended reach in the Chinese food market and the recent push to increase meat and poultry production could further boost Pakistan's exports.

The targeted online shoppers in China are increasingly focusing on foreign brands. Large businesses and premium brands from Pakistan can reach out to these buyers through Tmall Global – another Alibaba operated e-commerce platform allowing Chinese consumers to purchase products from abroad. Pakistan's small to medium businesses might not have the logistic prerequisites for this platform, but international-standard large companies certainly can.

Ant Financial is coming to Pakistan at a time when trade between Pakistan and China is touching new heights through the flagship project of Belt and Road Initiative (BRI) known as China Pakistan Economic Corridor (CPEC).

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